UK housing market faces pressure as banks approve fewer mortgages
British banks approved a smaller number of mortgages last month, according to the British Banking Association's monthly report on Friday, putting some pressure on the housing market.
Mortgage approvals fell back to 42,613 in February, which was 3.4% lower than January's revised 12-month high of 44,142, 4.6% lower compared to the February last year and some way short of the 44,900 consensus forecast.
The BBA's high street banking data showed mortgage borrowing of £13.4bn fell 4.3% compared to the preceding month but was up 4.6% year on year, or 2.5% after allowing for repayments.
Non-financial companies borrowed £1.6bn less in February compared to last year as some short-term borrowing unwound.
“Elevated approval volumes for house purchases and re-mortgaging experienced during the winter months fell back in February, to average levels seen throughout most of last year," said Eric Leenders, BBA managing director for retail banking.
The BBA also reported that consumer credit grew growth slowed an annual rate of 6.6% and that business borrowing continued to be subdued, growing by 0.9% annually.
Economist Howard Archer at IHS Markit noted that February's number was a three-month low for the BBA approvals after trending up to a 12-month high in January from a 19-month low in August.
"The February slowdown in mortgage approvals reported by the BBA reinforces our suspicion that housing market activity and prices will come under increasing pressure over the coming months from weakening fundamentals," he said.
"Markedly weakening consumer fundamentals, likely mounting caution over making major spending decisions, and elevated house price to earnings ratios are likely to weigh down on house prices. However, a shortage of supply is likely to put a hard floor under prices."
Archer said he believes house price gains over 2017 will be no more than 3%.
Hansen Lu at Capital Economics said the picture painted by this month’s numbers may be overly gloomy but the weakness in the year-on-year comparison partly reflects some strong lending figures from February last year when lending had been boosted by buyers rushing to transact ahead of the introduction of the stamp-duty surcharge.
But the sluggish recovery in approvals has also been down to buy-to-let lending, with CML data for this January showing BTL mortgage advances are still down by 39% y/y.
"Looking ahead, there are some factors that should support some further growth in mortgage approvals this year. Bank of England data show that the average rate on a new mortgage fell to 2.05% in January – a record low," he said, also noting a broadly favourable economic backdrop with low unemployment.
"Yet, with the first reduction in mortgage interest tax relief due in April, the outlook for buy-to-let lending is poor. On top of that, the RICS survey suggests that buyer demand growth stalled in February. As a result, while we think mortgage approvals will rise over the course of 2017, the pace of those gains will be gentle."